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General Information

Course ID (CB01A and CB01B)
ECOND005.
Course Title (CB02)
Behavioral Economics
Course Credit Status
Credit - Degree Applicable
Effective Term
Fall 2024
Course Description
This course provides an introduction to the basic principles of conventional economics focusing on purely rational decision making and contrasted with the more realistic behavioral economic model based on scientific studies of actual outcomes. The topics in the course include the structure of the brain, loss-avoidance, emotions, experiences, social norms, framing, endowment effect, fairness, ethics, morals, trust, satisficing, status, herding, and anchors. Other areas of focus include analysis of animal spirits, irrational exuberance, why smart people make investment mistakes, and blurring social and financial arrangements. Topics like the value of nudging people to make superior decisions, charitable donations, and happiness (money isn't everything) are also analyzed.
Faculty Requirements
Discipline 1
[Economics]
FSA
[FHDA FSA - ECONOMICS]
Course Family
Not Applicable

Course Justification

This course is CSU and UC transferable and meets °®¶¹´«Ã½ general education and CSU and UC general education requirements. It belongs on the AA- T Economics degree. This course is a major preparation requirement in the discipline of Economics. It introduces students to the field of Behavioral Economics, emphasizing scientific studies to explain human economic decisions which, under the traditional structure, are considered irrational.

Foothill Equivalency

Does the course have a Foothill equivalent?
No
Foothill Course ID

Course Philosophy

Formerly Statement

Course Development Options

Basic Skill Status (CB08)
Course is not a basic skills course.
Grade Options
  • Letter Grade
  • Pass/No Pass
Repeat Limit
0

Transferability & Gen. Ed. Options

Transferability
Transferable to both UC and CSU
°®¶¹´«Ã½ GEArea(s)StatusDetails
2GDX°®¶¹´«Ã½ GE Area D - Social and Behavioral SciencesApproved
CSU GEArea(s)StatusDetails
CGDYCSU GE Area D - Social SciencesApproved
IGETCArea(s)StatusDetails
IG4XIGETC Area 4 - Social and Behavioral SciencesApproved

Units and Hours

Summary

Minimum Credit Units
4.0
Maximum Credit Units
4.0

Weekly Student Hours

TypeIn ClassOut of Class
Lecture Hours4.08.0
Laboratory Hours0.00.0

Course Student Hours

Course Duration (Weeks)
12.0
Hours per unit divisor
36.0
Course In-Class (Contact) Hours
Lecture
48.0
Laboratory
0.0
Total
48.0
Course Out-of-Class Hours
Lecture
96.0
Laboratory
0.0
NA
0.0
Total
96.0

Prerequisite(s)

Corequisite(s)

Advisory(ies)

EWRT D001A or EWRT D01AH or ESL D005.

ECON D001., ECON D001H, ECON D002. or ECON D002H

Limitation(s) on Enrollment

Entrance Skill(s)

General Course Statement(s)

(See general education pages for the requirements this course meets.)

Methods of Instruction

Lecture and visual aids.

Discussion of assigned reading.

Collaborative learning and small group exercises.

Discussion of assigned reading as well as assigned problem sets.

Midterms and final exam performed in class or online.

Assignments

  1. Assigned readings from text and supplemental articles; understanding of the material will be evaluated comprehension using written problem sets, in-class exercises, and exams.
  2. Problem sets to be written and handed in. These will be graded for correctness, completeness, comprehension and analysis.
  3. In-class/online exercises done in groups of 3 or 4 to demonstrate behaviors and game theory. These will be graded for completeness and correctness. Includes games, simulations and experiments to illustrate the concepts of behavioral economics.
  4. Two midterms and a final exam demonstrating analysis, and ability to compare and contrast theories.

Methods of Evaluation

  1. Course Objectives A, B, C, D, E and F: Problem sets, in-class exercises, 2 midterms and a final exam demonstrating analysis and ability to compare and contrast theories.

    Simulations and experiments demonstrating analysis of the decision-making process and application of economic theories.
  2. Course Objectives D and E: A research paper/reaction report for analysis and ability to compare and contrast theories. Students will be asked to show their work in the derivation of problem set solutions to demonstrate comprehensive understanding of the theories.

Essential Student Materials/Essential College Facilities

Essential Student Materials: 
  • None
Essential College Facilities:
  • None

Examples of Primary Texts and References

AuthorTitlePublisherDate/EditionISBN
Wilkinson, Nick; Klaes, Matthias,An Introduction to Behavioral EconomicsBloomsberry Academic2022, 3rd edition9781137524126
Angner, EricA Course in Behavioral EconomicsPalgrave Macmillan3rd edition, 2020978-1352010800
Thaler, Richard H.Misbehaving, The Making of Behavioral EconomicsNorton2016978-0393352795
Thaler, Richard H., Sunstein, Cass R.Nudge, Improving decisions About Health, Wealth, and HappinessPenguin2009978-0143115267
Just, David RBehavioral EconomicsWiley20149780470596227

Examples of Supporting Texts and References

None.

Learning Outcomes and Objectives

Course Objectives

  • Delineate conventional economics and its assumed behaviors and goals of individuals, workers and firms.
  • Describe the nature of behavioral economics and the contributions from psychology, sociology, neurology, and cultural norms.
  • Analyze decision making under various conditions from perfect information and unlimited time, to imperfect information and tight time constraints and the fear of uncertainty. The need for quick and simple heuristics.
  • Evaluate decision making outcomes by changing the degrees of emotions, loss aversion, framing, morals and ethics, status, mental accounting, the endowment effect and herd mentality.
  • Elucidate the economic importance of ethics, positive cultural norms, honest institutions and well-being to grow a shared economic pie.
  • Evaluate happiness as a goal and lessons from behavioral economics for increasing life-long satisfaction. Discuss the problems of directly pursuing happiness as a goal.

CSLOs

  • Demonstrate an understanding of conventional economics based on purely rational, utility-maximizing decision making by 'Homo Economicus'.

  • Understand and discuss how the multiple elements of behavioral economics explain various human decisions.

  • Compare and contrast behavioral outcomes using psychological, sociological, neurological and institutional factors as well as conventional utility-maximizing behavior.

  • Evaluate and explain the desirability of various outcomes. Make recommendations for ethical ways to nudge people towards superior decisions.

Outline

  1. Delineate conventional economics and its assumed behaviors and goals of individuals, workers and firms.
    1. Define Homo Economicus, the perfectly rational and solitary decision maker who has perfect information.
    2. Define and calculate marginal utility and total utility.
    3. Define and discuss maximizing marginal utility per dollar as a goal for individuals. Assume all people are utility maximizers.
    4. Calculate maximizing marginal utility per dollar when an individual is choosing among multiple goods.
    5. Define the conventional goals of workers; maximizing salary and benefits.
    6. Use real-life examples of workers choosing among various employment options.
    7. Define conventional goals of firms; maximizing profits.
    8. Discuss how firms work to minimize costs while maintaining quality.
    9. Define creative destruction.
    10. Discuss how firms must continue to innovate and introduce new products or be overrun by competitors.
  2. Describe the nature of behavioral economics and the contributions from psychology, sociology, neurology, and cultural norms.
    1. Discuss the evolution of the human brain.
    2. Looking at a map of the brain, analyze the division of labor in the human brain.
    3. Understand the role of emotions in making economic decisions.
    4. Discuss the case of Phineas Gage. He survived a rod thrust into his head and brain.
    5. When Gage’s emotional brain was destroyed, he was incapable of evaluating risk.
    6. Discuss lessons from psychology included in behavioral economics.
    7. People are not uniform. People vary in their beliefs, temperaments, upbringings, intellect, experiences and goals.
    8. People presented with the same information and options will make different decisions.
    9. One person’s irrational decision is another person's rational decision.
    10. Discuss social and cultural norms and how they impact economic decisions.
    11. Violating cultural or social norms can lead to estrangement or disapproval from your family, peer group or society.
    12. Discuss real examples of cultural and social norms across the world.
    13. Tipping is expected in some countries, and is an insult in other countries.
    14. Cultural restrictions on women, discrimination, and religion.
  3. Analyze decision making under various conditions from perfect information and unlimited time, to imperfect information and tight time constraints and the fear of uncertainty. The need for quick and simple heuristics.
    1. Perfect information is knowing all things and completely unbiased by advertising.
    2. Unlimited time allows us to consider and thoroughly investigate all options.
    3. Imperfect and biased information is a realistic expectation.
    4. Time to gather information and brain-processing time are both limited.
    5. Uncertainty is frightening, and a fact of life.
    6. Satisficing rather than maximizing is common for individuals as well as firms.
    7. Bounded Rationality.
    8. Heuristics are when people use rules of thumb and habits to expedite the numerous decisions we all make.
    9. Most decisions are based on imperfect information, time constraints, and rules of thumb
  4. Evaluate decision making outcomes by changing the degrees of emotions, loss aversion, framing, morals and ethics, status, mental accounting, the endowment effect and herd mentality.
    1. The band wagon effect, or focal-point equilibria.
    2. Conspicuous consumption, or the snob effect.
    3. Loss aversion. People feel more pain from a loss than pleasure from a gain.
    4. Framing. Change the frame and our opinion of an economic situation changes. Framing prices.
    5. Advertising and preference distortions.
    6. Anchoring. How random information can affect our economic decisions.
    7. Emotions can lead to irrational decision making.
    8. Confirmation bias. A pre-formed decision recognizes only confirming information. (expectations shape perceptions)
    9. Nudging people to make superior decisions. (Anti-smoking, … change the default option to “will save’’ will increase saving for retirement. Changing the default to “will donate†will increase the % of those donating organs)
    10. Lack of free will, or lack of self control. (addictions and habits.)
    11. Prospect theory. Deciding between two probabilistic outcomes under uncertainty.
    12. Endowment effect. We value what we have.
    13. Status quo bias.
    14. Societal norms affect outcomes and determine criminal behavior.
    15. The ‘power of free’ causes people to take smaller quantities than they would take if the price were 1 cent.
    16. Smart people can make stupid investments. High fees, complex
      1. Mental accounting. Most people put expenses in different buckets; can lead to suboptimal outcomes.
      2. People spend more money when using a credit card than when they pay in cash.
      3. Selective recall can support bad investment decisions.
      4. What stock to sell? Most will sell the stock with a profit, retain stocks with a loss.
      5. The sunk cost fallacy.
      6. Housing wealth. Attraction and danger of using your house as an ATM.
    17. The winner’s curse at gambling or an auction.
  5. Elucidate the economic importance of ethics, positive cultural norms, honest institutions and well-being to grow a shared economic pie.
    1. Business cycles are part of the normal growth pattern.
    2. Variations in emotions, intuition, and animal spirits are contributors to business cycles.
    3. People like to trust and be trusted.
    4. Most people do not commit crimes even when crime is highly lucrative.
    5. People tend to be much happier and more productive living in a democracy with honest institutions.
    6. Corrupt governments cause their countries to have much lower growth rates.
    7. The ‘Resource Curse’ has lead to dictatorships and corrupt institutions in many oil-rich countries.
    8. Corruption causes capital flight as well as brain drain. This robs society of any promise for a brighter future.
    9. Excellent public education is vital to growing a shared economic pie.
    10. People want to do business with honest firms. An honest set of government institutions breeds business honesty.
    11. Protection of private property encourages maintenance, investment and innovation that leads to economic growth.
  6. Evaluate happiness as a goal and lessons from behavioral economics for increasing life-long satisfaction. Discuss the problems of directly pursuing happiness as a goal.
    1. Happiness results more from pursuing a goal rather than attaining a goal.
    2. Happiness can be a dispositional trait rather than a reaction to external events.
    3. Americans tend to confuse happiness with material possessions and now report having fewer close friends now than several decades ago.
    4. Earning such a low income that a family’s basic needs cannot be met is a cause of stress and unhappiness. Similarly, the problem of chronic debt makes people unhappy which increases the likelihood of depression, heart attacks, addictions and divorce.
    5. There are significant diminishing returns on increasing levels of income and wealth.
    6. The hedonistic treadmill. More money buys more happiness…but not for long.
    7. The Easterlin paradox: more money does not buy long term happiness.
    8. Less money, decreased income that is not of one’s choosing, will increase sadness.
    9. The non-stop work day and constantly being connected to e-mail increases stress and causes family members to feel unimportant and less connected to family and the blurring of work, social and financial arrangements crowds out long term friendships.
    10. A job you enjoy that you believe has meaning increases happiness.
    11. Happiness increases when society has higher quality governance and honest institutions. Corruption destroys trust and yields unhappiness.
    12. The more time people spend on Facebook and playing video games, the less happy they are and similarly People jointly using their cell phones are “Alone Together†and are not developing empathy.
    13. The more time people spend interacting with other people, the happier they are.
    14. People of all income levels experience happiness from donating money to worthy causes.
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